Profits increase for cow-calf ranchers

Take for example one standard class: 90 percent lean ground beef from heifers and steers. The wholesale price in early April ran about $3.01 per pound, up 27 percent from a year ago, according to data compiled by LINC in Denver. Going back further to April 2010, the price for the same class of hamburger was about $1.85 per pound. Measured in real dollars, adjusted for inflation, that’s a full $1 per pound or 50 percent increase in four years.

The growing Asia market is helping to sustain these prices. From 2009 to 2013, beef exports to Japan, Taiwan, South Korea, Vietnam and Hong Kong doubled in tonnage, according to State Department estimates. The beef lobby is working to reduce tariffs imposed by Japan and further increase sales there. But the greater fascination is with China, where former Sen. Max Baucus — from cattle country Montana — is the new U.S. ambassador.

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Beijing continues to ban U.S. beef, but there’s ample evidence of transshipments into mainland China through first Vietnam and now largely Hong Kong.

“It’s an open secret,” said one senior State Department official who has been posted in China in recent years. In the cattle industry, Hong Kong and Vietnam are described half-humorously as the “Greater China market.”

Just a decade ago, Vietnam and Hong Kong imported just 2.4 million pounds of beef and veal from the U.S., according to USDA data. By 2009, that had soared to 230 million pounds and in 2013 accounted for 369 million pounds — with most of the shipments now going directly to Hong Kong. For the first two months of this year, the pace has been even higher.

“It’s phenomenal what is being shipped over there,” said Todd Wilkinson, whose extended family in South Dakota operates both feedlot and cow-calf operations. “Somebody’s got enough money to buy.”

But back home, there’s beginning to be some fear in the industry that beef could price itself out of the American diet. Per capita expenditures for beef — when measured in dollars — remain strong. But when measured by weight, there has been a major decline in per capita beef purchases at the retail level in recent years.

Pork is having its own price and supply problems lately with the outbreak of a virus killing young pigs. But pork and poultry are not only cheaper but can grow faster to meet demand.

That’s not as easy for beef. It all comes back to biology and the decisions of cow-calf operators who must look several years ahead.

A calf born this spring is typically kept with its mother in summer pasture until weaned and then sent in the fall to a “backgrounder” who will keep it on grass before going to a feedlot and ultimately slaughter in 2015. To grow the herd, cow-calf operators must slow this process by retaining more heifer calves in 2014. But those first offspring will be born only in 2016 and won’t then reach the packing house as yearlings until 2017.

What that means is less beef — not more — in the immediate future as heifers are held back to have calves. And FAPRI’s projections show that the industry won’t get back to even its 2013 slaughter rate until 2018.

Asked whether this means more plant closings, Kevin Good, a senior analyst with CattleFax, a Denver-based information and analysis service for the industry, doesn’t hesitate.

“Absolutely,” Good said. “Between what we did last year and 2015 there could be a 2.5 million head decline. … It could be two plants, it could be four to five plants that are really at risk over the next couple of years.”

“The bottom line is we need it to rain,” said Colin Woodall of the National Cattlemen’s Beef Association. But for the ranchers themselves, the weather patterns and market signals are not without conflict.

“The whole thing starts on the cow-calf side; that’s where we get the calves,” said professor David Anderson of Texas A&M University. And individual operators will have to weigh resisting the high prices now so as to grow their herds for the future.

“I’ve got to balance,” he said, imagining himself with heifer calves to sell. “Prices are so high today I can sell that calf for a lot. Or I can keep her, and she’ll have more calves.”

The Wooten family ranches on an estimated 27,000 acres in southeast Colorado, enough land to stock 400 to 450 mature animals with normal moisture. But after years of drought, they are operating at roughly three-quarters that level with about 330 cows. And right now, they will take advantage of the high prices to reduce their Red Angus herd, by selling 110 cows and their spring calves to pay off some debt, and allow the ranch to refresh itself with fewer animals on the grass.

“We can’t get enough good weather put together to get us up to the 400 to 425,” Wooten said. But at 57, he is upbeat about his land’s future: “We’ll build back slowly but do it from our own heifer calves.”

Kelly Flaherty-Settle and her husband, Scott, run a Black Angus cow-calf operation on an estimated 6,000 acres in Canyon Creek, Mont. In addition to their deeded land, she estimates they lease 15,000 to 18,000 acres of grasslands but, like Wooten, are cautious about growing.

Shortages of water have reduced the yields from their hayfield. In competing for state-owned grasslands, the family has run into those wanting the same land for recreational purposes such as hunting.

As a result, the Settle ranch deliberately calved out fewer cows this spring — 360 versus 400 last year, Flaherty-Settle said. That still leaves about 900 animals — counting the calves. But “grass is your base,” she said. “My husband always says if you don’t take care of the grass, you’re not being a good steward.”

History shows cattle can be moved great distances to find forage. The King Ranch in Texas famously moved hundreds of head to Chester County, Pa., to escape droughts in the 1940s and ’50s. Drought-stricken California herds are already selling animals or moving stock to Montana this summer.

But livestock newspapers this spring are filled with classified ads: “Summer Pasture Wanted. References Available.” Pot may be suddenly legal in some quarters in the West, but old-fashioned grass is in short supply.

For all these reasons, Jim Peterson, a rancher and state senator in central Montana, counts himself as doubly lucky.

His own lands, on the northern slope of the Rockies, have escaped the worst of the drought, and he was able to double his holdings when a neighbor sold out to Peterson — rather than to a competing Texas oilman bidding for the same 8,500 acres.

“If it had not been for the relationship between my neighbor and my son and me, we probably would not have gotten it,” Peterson said. “There’s a lot of competition for land. … It’s not all oil, but people who have made a lot of money and want to park their money in a safe place right now.”

With a base herd of about 450 cows, the new acquisition opened the door for Peterson to expand in tandem with his 35-year-old son Robert, who boasts his own feedlot operation in nearby Hobson, a doctorate from the University of Nebraska and a Latin brand, to boot.

“His business name is BosTerra,” said Peterson with a mix of humor and a father’s pride. “That’s Latin for cattle and land.”

To hear him talk, Peterson — who turns 68 this summer — might be Steve Wooten: the aging rancher looking toward the future and the next generation.

But at another level, the Petersons are clearly moving at a faster pace. “Pretty hard to grow very fast using your own cattle,” Peterson said. “Rather than do it over a 10-year period, we’re going to do it over a two- to three-year period.”

Is this the new world for cow-calf operations: Latin brands and more consolidation? Or will the cows themselves insist on independence and resist the economies of scale that have so changed the rest of American agriculture?

Peel leans more to the cows.

“The beef industry among livestock industries is unique and certainly among agriculture broadly,” he said. “The biology means it’s a very slow process. … Cows don’t have litters. They do it one at a time. And it’s fundamentally, more than anything else, just because cattle are still outside.”

“We’re producing cattle in a wide range of environments … from subtropical in Florida and the Gulf Coast to near sub-Arctic conditions in the Rocky Mountains,” he said. “There’s no notebook that works in all of those environments like there is if you put up a hog barn or a chicken barn.”

“You just can’t do that with cattle. There’s too much on-the-ground managerial and innovation needs to make that happen.”